Insurance grace periods: When do you get cut off?

Knowing your insurance company’s grace period is key to keeping your coverage in force. Insurers will generally give you a cushion of time past your premium due date to pay up and still have your claims covered. But if you exceed that grace period, your insurance company could cancel your policy.

If you’ve let your insurance lapse, you may need to re-apply, ante up higher premiums and perhaps even face new conditions attached to your policy (like a pre-existing condition exclusion attached to a health insurance policy).

Auto and home insurance grace periods

Stay alert: Both auto and home insurance policies have short grace periods. For car insurance, you're usually sent a 10-day notice of cancellation a few days after your premium due date, although some states require more advance notice. Insurers bear the risk that you’ll have a claim, so they expect to be paid for the coverage, says Don Griffin, vice president of personal lines at Property Casualty Insurers Association of America, an industry trade group. "The policy is a legal contract, and there could be a loss during that time."

If you have trouble paying your home or auto insurance due to lack of funds, your best option is to rearrange your payment schedule (such as going monthly, for smaller payments). If mailing your check on time is a problem, you can pay by credit card or automatic funds transfer, adds Griffin.

Once your insurance is cancelled, you’re on your own: If you have a car accident or your house burns down, there are no loopholes to make a cancelled policy pay out. And you will have to endure the entire application process again, adds Griffin.

When you reinstate your coverage, insurers often make sure there were no intervening losses by inspecting the car or house. "The insurer may also require a larger down payment or require that it be paid in full," Griffin says. "But in most cases, they'll take you back." Chronic late-payers may find that their insurance company doesn’t want them back.

A non-payment history can dog you when you’re shopping for new insurance. Insurance applications include a key question: Has you insurance ever been cancelled? If you answer yes, you’re pegged as a high-risk customer and can be subject to higher premiums.

Homeowners insurance is much the same: You’ll still get the same 10-day cancellation notice after your due date. "Try to work with your insurance company so that you keep your insurance," advises Griffin.

Life insurance grace periods

Time is on your side with life insurance. Grace periods for late payments last anywhere from 30 to 60 days and your life insurance remains in force during that time.

"Companies want you to keep your coverage," says Jack Dolan, a spokesperson for the American Council of Life Insurers, an industry trade group. "Life insurers will work with you."

But once a life insurance policy lapses, it may be difficult to reinstate. Your insurer may require you to show additional evidence of insurability, such as undergoing a medical exam. If you have developed a new medical condition, your policy may not be reinstated.

Most policies — including term life insurance -- can be reinstated within five years of lapsing if overdue premiums are paid and loans against cash value are satisfied. If you have a level premium term policy, you can still pay premiums based on your original issue age.

To avoid a policy cancellation, Dolan suggests talking with your agent. He adds that there are options for catching up with payments for permanent life insurance, such as making partial payments, suspending coverage for a period of time or using the policy’s cash value to cover premium payments. Check with your insurance company for term life payment options. "Get in touch with your insurer sooner rather than later," advises Dolan. "Don't rely on grace periods to keep policies."

Health insurance grace periods

There are few ways to fix late premium payments with individual health insurance coverage. Generally, grace periods are 30 days, although this period is governed by state laws. However, insurers will stop accepting claims a few weeks after your premium is due.

"When you pay your premium, they unlock [claim] payments," says Matt Tassey, past chairman of the Life and Health Insurance Foundation for Education. For example, if you send in a payment by the 29th day of your 30-day grace period, the insurer has to continue your coverage.

Once your health insurance policy has lapsed, it's over. That means you'll be navigating the application process again, and claims incurred after the due date won’t be paid.

To reinstate your policy, you must pay back premiums. However, some insurers won’t accept payments that are more than 90 days late. Also, new conditions may apply if you’re beyond the grace period. For example, if your coverage gap has been longer than 63 days, a health insurance plan may now exclude coverage for your pre-existing conditions.